UBS posts net profit beat as market volatility boosts trading

Swiss banking titan UBS on Wednesday doubled net profit year-on-year, beating expectations on the bottom line amid a boost from its investment bank and global wealth management divisions.

Net profitable attributable to shareholders hit $2.395 billion in the second quarter, up from $1.136 billion in the same period of last year and beating a mean LSEG analyst forecast of $1.901 billion. The bank’s revenues over the period reached $12.112 billion, just below analyst expectations of $12.45 billion.

Other second-quarter highlights included:

• Return on tangible equity was 11.8%, compared with 8.5% in the March quarter.
• CET 1 capital ratio, a measure of bank solvency, was 14.4%, after hitting 14.3% in the first three months of the year.

The lender’s global markets unit of its investment banking arm achieved a 25% annual hike to $2.3 billion in revenues, “tracking the exceptional levels of volatility early in quarter.” The global wealth management division saw transaction-based income up 12% in the three months to the end of June.

Yet UBS CEO Sergio Ermotti said that, while equity markets are now up 30% from the lows of April when the White House first disclosed its so-called reciprocal tariffs, activity levels reflected a “healthy” but not record environment.

“So clients are still on a kind of wait-and-see attitude, not only institutional and private clients, but… also corporate clients. So you see the deployment of cash, but the conviction level is not yet to the extent that it will make it more constructive,” he told CNBC’s Carolin Roth on Wednesday.

In its earnings release, UBS said the third quarter kicked off with “strong market performance in risk assets, particularly international equities, combined with a weak US dollar.”

The lender’s net interest income (NII) — the difference between gains made of loans and investments, and the interest paid on deposits — was $1.965 billion, after UBS had guided for a “low single-digit percentage” of declines in the second quarter.

In the third quarter, the bank expects “broadly stable” NII at its global wealth management and corporate bank divisions in Swiss francs, while “in US dollar terms, this translates to a sequential low single-digit percentage increase.”

“The outlook suggests that NII has finally troughed and existing financial targets have been reiterated, but there is no update on capital return plans and it appears UBS’ lobbying efforts on recent Swiss capital proposals is set to continue,” Citi analysts said in a note following the results release.

The NII performance is of particular concern to investors, given Switzerland’s June return to 0% interest rates in a broader battle to stave off the fall in national inflation and the strength of the Swiss franc.

“For the time being, it’s going to be difficult to see that [interest] rates will go up,” Ermotti said. “The economy is still quite resilient and, and inflation has not abated to the level necessary, probably, to take actions.”

UBS’ integration of embattled rival Credit Suisse, which it took over in 2023, “remains on track,” with one-third of Swiss client accounts now migrated and 70% of the expected $13 billion gross savings implemented, UBS said Wednesday. The bank otherwise said it has completed $1 billion in share buybacks in the first half of the year, with another $2 billion in repurchases to follow in the second six-month stretch.

UBS shares have been on a bumpy ride this year, with the lender suffering as a result of its exposure to U.S. markets in the wake of Washington’s imposition of so-called reciprocal tariffs on most global trade partners, which have triggered uncertainty over the outlook for the world’s largest economy.

“Investor sentiment remains broadly constructive, tempered by persistent macroeconomic and geopolitical uncertainties,” UBS said Wednesday. “Against this backdrop, our client conversations and deal pipelines indicate a high level of readiness among investors and corporates to deploy capital, as conviction around the macro outlook strengthens.”

“People need to see the endgame of all these [trade] discussions,” Ermotti said. “Probably there is a little bit of a news fatigue.”

Domestically, UBS has been trapped in a drawn-out row with Swiss authorities, which in June proposed strict new capital rules requiring the bank to hold an additional $26 billion in core capital. The measures are particularly meant to address concerns over UBS’ ability to buffer potential losses at its foreign units. Following UBS’ takeover of Credit Suisse, Swiss regulators assessed the lender has become “too big to fail” and would drag down Switzerland’s national economy and financial system in the event of its default.

UBS has been fighting the designation and in June said it supported “in principle” the regulatory proposals, while disagreeing with the “extreme” increase in capital requirements, which it estimates would push it to hold around $42 billion in additional CET1 capital in total.

Higher capital requirements can considerably diminish a bank’s balance sheet and credit supply, dampen risk appetite and potentially impact availabilities of discretionary funds.

In late June, a Swiss parliamentary committee backed a motion that could delay some of the UBS banking proposals, according to Reuters.

Asked on the new capital requirement proposals on Wednesday, Ermotti said UBS must remain focused on finalizing the Credit Suisse integration against this backdrop.

“It’s very much clear to me that we will need to see exactly when the proposals are finalized, approved, and then we will consider appropriate actions to protect the interests of our shareholders,” he said.